Lord Sugar’s View of Bank Lending “black and white”, says FPB

Banks should cut their reliance on automated loan risk assessments and return to personal banking, the Forum of Private Business (FPB) has said in the wake of comments by Lord Sugar defending the banks’ approach to lending decisions.

Speaking to The Radio Times — which he is guest editing ahead of the new series of The Apprentice — Lord Sugar said banks were being unfairly criticised for taking a “responsible” approach to lending.

“The banks were villains by acting irresponsibly, but now they’re trying to act responsibly, they’re getting chastised for not lending irresponsibly again,”

he is reported to have said.

“It is a total joke, a complete and utter political joke. Why should a bank give you some money?”

But the FPB’s senior policy adviser Phil McCabe said that Lord Sugar’s “black and white” view was “a bit unfair” and overlooked the real dilemmas facing small businesses applying for loans.

“What I would say to Lord Sugar is no-one’s advocating a banking approach which is high-risk, but banks should be better placed to judge risk appropriately,”

said McCabe.

While acknowledging that small businesses often needed to present a more robust case when applying for lending, McCabe said that the banks’ reliance on automated risk assessment for loans meant many worthwhile applications were turned down, adding:

“Bank managers that once were able to build real relationships and were able to judge risk, can’t do that anymore.”

Figures published by the British Bankers’ Association (BBA) late last year revealed that just two-thirds of applications for loans were approved by British banks in the first three-quarters of 2011.

Only 4% of small and medium-sized businesses applied for a bank loan in the period, confirming reports that demand for bank finance has fallen considerably in the small business sector.

BBA spokeswoman Elle Laven said there was a “disjunct between supply and demand” which BBA research showed was due to a continued lack of confidence in the economy.

However, McCabe said small businesses were also put off applying for bank finance because they felt their chances of approval were slim. They were also deterred by stiff repayment terms.

“The cost of lending is a big issue here, especially when you consider that the banks borrow at 0.5% and the typical interest rate on a loan is 5% or more. A lack of demand is not reflective of a lack of need. It’s more reflective of a lack of confidence in mainstream lenders. The banks need to come some way to restore that level of local service.”

McCabe said small businesses would benefit from better promotion of alternative sources of finance, such as peer-to-peer lending and even asset-based financing. Laven stressed that banks were supporting initiatives to improve knowledge about business finance and the BBA was preparing to launch a new ‘Finding Finance’ website later in the spring, to go with the existing Better Business Finance site.

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